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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
(Mark One)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended June 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the transition period from ______to ______
Commission file number: 0-18391
ASPECT TELECOMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
California 94-2974062
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1730 Fox Drive, San Jose, California 95131-2312
(Address of principal executive offices and zip code)
Registrant's telephone number: (408) 325-2200
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
The number of shares outstanding of the Registrant's Common Stock, $.01 par
value, was 21,164,658 at July 31, 1996.
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ASPECT TELECOMMUNICATIONS CORPORATION
INDEX
Description Page Number
- - ----------------------------------------------------------------------------- -----------
Cover Page 1
Index 2
Part I: Financial Information
Item 1: Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1996 and
December 31, 1995 3
Condensed Consolidated Statements of Income for the Three and
Six Month Periods Ended June 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows for the Six Month
Periods Ended June 30, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
Part II: Other Information
Item 4: Submission of Matters to a Vote of Security Holders 12
Item 6: Exhibits and Reports on Form 8-K 12
Signature 13
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ASPECT TELECOMMUNICATIONS CORPORATION
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS
June 30, December 31,
1996 1995
--------- ---------
(unaudited) **
Current assets:
Cash and cash equivalents $ 34,865 $ 22,102
Short-term investments 74,515 71,531
Accounts receivable, net 42,922 39,291
Inventories 11,926 11,051
Other current assets 9,503 8,699
--------- ---------
Total current assets 173,731 152,674
Property and equipment, net 34,002 28,418
Other assets 4,237 3,374
Intangible assets, net 29,541 31,405
--------- ---------
Total assets $ 241,511 $ 215,871
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,678 $ 11,142
Accrued compensation and related benefits 8,277 8,427
Other accrued liabilities 22,119 15,242
Customer deposits and deferred revenue 10,719 9,275
--------- ---------
Total current liabilities 48,793 44,086
Convertible subordinated debentures 55,000 55,000
Note payable 4,500 4,500
Shareholders' equity:
Preferred stock, $.01 par value:
2,000,000 shares authorized, none outstanding in 1996 and 1995 -- --
Common stock, $.01 par value:
100,000,000 shares authorized, 21,155,633 outstanding
in 1996; 20,876,461 outstanding in 1995 66,012 62,082
Net unrealized gain (loss) on available-for-sale securities (22) 102
Accumulated translation adjustments (464) (437)
Retained earnings 67,692 50,538
--------- ---------
Total shareholders' equity 133,218 112,285
--------- ---------
Total liabilities and shareholders' equity $ 241,511 $ 215,871
========= =========
** Derived from audited financial statements.
See accompanying notes.
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ASPECT TELECOMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited - in thousands, except per share data)
Three Months Ended Six Months Ended
------------------------------- ------------------------------
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
------------- ------------- ------------- -------------
Net revenues:
Product $ 54,391 $ 33,801 $104,431 $ 65,672
Customer support 17,135 12,428 32,922 23,283
-------- -------- -------- --------
Total net revenues 71,526 46,229 137,353 88,955
Cost of revenues:
Cost of product revenues 17,971 11,342 34,479 22,747
Cost of customer support revenues 12,387 8,768 23,760 16,564
-------- -------- -------- --------
Total cost of revenues 30,358 20,110 58,239 39,311
-------- -------- -------- --------
Gross margin 41,168 26,119 79,114 49,644
Operating expenses:
Research and development 8,038 5,726 15,376 10,761
Selling, general and administrative 19,298 11,728 37,066 22,395
-------- -------- -------- --------
Total operating expenses 27,336 17,454 52,442 33,156
-------- -------- -------- --------
Income from operations 13,832 8,665 26,672 16,488
Interest income, net 315 593 556 943
-------- -------- -------- --------
Income before income taxes 14,147 9,258 27,228 17,431
Provision for income taxes 5,234 3,425 10,074 6,449
-------- -------- -------- --------
Net income $ 8,913 $ 5,833 $ 17,154 $ 10,982
======== ======== ======== ========
Primary earnings per share:
Net income per share $ 0.39 $ 0.27 $ 0.75 $ 0.51
======== ======== ======== ========
Shares used in per share computations 23,065 21,608 22,928 21,548
======== ======== ======== ========
Fully diluted earnings per share:
Net income per share $ 0.36 $ 0.26 $ 0.70 $ 0.48
======== ======== ======== ========
Shares used in per share computations 25,895 24,564 25,826 24,538
======== ======== ======== ========
See accompanying notes.
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ASPECT TELECOMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited - in thousands)
Six Months Ended June 30,
---------------------------
1996 1995
-------- --------
Cash flows from operating activities:
Net income $ 17,154 $ 10,982
Reconciliation of net income to cash provided by
operating activities:
Depreciation and amortization 6,713 4,340
Changes in:
Accounts receivable (4,006) (7,747)
Inventories (987) 393
Other current assets and other assets (1,641) 286
Accounts payable (3,405) (465)
Accrued compensation and related benefits (146) 294
Other accrued liabilities 6,941 2,511
Customer deposits and deferred revenue 1,623 (1,392)
-------- --------
Cash provided by operating activities 22,246 9,202
Cash flows from financing activities:
Common stock transactions 3,930 2,064
-------- --------
Cash provided by financing activities 3,930 2,064
Cash flows from investing activities:
Short-term investment purchases (51,719) (44,086)
Short-term investment sales and maturities 48,522 36,950
Property and equipment purchases (10,562) (6,209)
-------- --------
Cash used in investing activities (13,759) (13,345)
Effect of exchange rate changes on cash 346 36
-------- --------
Increase (decrease) in cash and cash equivalents 12,763 (2,043)
Cash and cash equivalents:
Beginning of period 22,102 27,971
-------- --------
End of period $ 34,865 $ 25,928
======== ========
See accompanying notes.
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ASPECT TELECOMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The consolidated financial statements include the accounts of Aspect
Telecommunications Corporation and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
While the quarterly financial information contained in this filing is unaudited,
the financial statements presented reflect all adjustments (consisting only of
normal recurring adjustments) which the Company considers necessary for a fair
presentation of the results of operations for the interim periods presented and
of the financial condition of the Company at the dates of the interim balance
sheets. The results for interim periods are not necessarily indicative of the
results for the entire year. The information included in this report should be
read in conjunction with the Company's audited financial statements and notes
thereto included in the Company's 1995 Annual Report to Shareholders.
Per Share Information
Per share information for the periods presented is computed using the weighted
average number of common and common-equivalent shares outstanding. For primary
earnings per share calculations, common-equivalent shares consist of the
incremental shares issuable upon the assumed exercise of dilutive stock options
using the treasury stock method.
For fully diluted earnings per share calculations, common-equivalent shares also
include the dilutive effect of incremental shares issuable upon the conversion
of the 5% convertible subordinated debentures, and net income is adjusted for
the interest expense, net of income taxes, related to the debentures.
Share and per share data for all periods presented reflect a two-for-one stock
split beginning September 25, 1995.
Inventories
Inventories, valued at the lower of cost (first-in, first-out) or market,
consist of:
(in thousands)
June 30, December 31,
1996 1995
------------ ------------
Raw materials $7,480 $7,556
Work-in-progress 773 660
Finished goods 3,673 2,835
------- -------
Total $11,926 $11,051
======= =======
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Subsequent Event
On July 26, 1996, the Company acquired a 98,000 square-foot building and
approximately ten acres of land, of which approximately four acres are
undeveloped, for $10.5 million in cash. The building and the land are directly
across the street from the Company's San Jose, California headquarters.
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ASPECT TELECOMMUNICATIONS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
condensed consolidated financial statements and notes thereto included in Part I
- - -- Item 1 of this Quarterly Report and the audited consolidated financial
statements and notes thereto and Management's Discussion and Analysis in the
Company's 1995 Annual Report to Shareholders.
On October 31, 1995, the Company acquired TCS Management Group, Inc. (TCS), a
company engaged in the business of designing, marketing, and supporting software
that automates the tasks associated with managing the workforce in a call
center, specifically, call forecasting, staff scheduling, and staff performance
tracking. The acquisition was accounted for as a purchase. The operating results
of TCS have been included in the consolidated statements of income since the
date of acquisition.
The Company desires to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. Specifically, the Company
wishes to alert readers that, except for the historical information contained
herein, the following discussion constitutes forward-looking statements that are
dependent on certain risks and uncertainties. These and other factors which may
cause actual results to differ materially from those expressed in any
forward-looking statements made by or on behalf of the Company are described
below, in the Company's 1995 Form 10-K and in the Company's 1995 Annual
Report to Shareholders in the section titled "Management's Discussion and
Analysis - Risk Factors."
The Company's common stock price may be subject to significant volatility. Past
financial performance should not be considered a reliable indicator of
performance for any future period, and investors should not use historical
trends to anticipate future results or trends. For any given quarter, a
shortfall in the Company's announced revenue or earnings from the levels
expected by securities analysts could have an immediate and adverse effect on
the trading price of the Company's common stock. Additionally, the Company may
not learn of such shortfalls until late in a fiscal quarter, which could result
in an even more immediate and adverse effect on the trading price of the
Company's common stock. Further, the Company participates in a very dynamic high
technology industry, which could result in significant fluctuations in the
Company's common stock price at any time.
The Company believes that changes in any of the following areas could have a
material adverse affect on the Company's future financial position or results of
operations: changes in the overall demand for telecommunications products;
changes in the technology underlying the call transaction processing market;
increased competition; litigation against the Company based on securities,
intellectual property or other claims; risks associated with international
operations; compliance with regulatory requirements; availability of necessary
components and manufacturing licenses; and the Company's ability to implement
and improve its operational and financial systems and attract and retain
employees necessary to support its growth. See the section titled "Management's
Discussion and Analysis - Risk Factors" in the Company's 1995 Annual Report to
Shareholders.
RESULTS OF OPERATIONS
Net Revenues
Total net revenues for the second quarter of 1996 were $72 million, representing
an increase of 55% when compared with total net revenues of $46 million for the
same period in 1995. Total net revenues for the first six months of 1996 were
$137 million, representing an increase of 54% when compared with total net
revenues of $89 million for the same period in 1995.
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Sales of the Company's products generally involve a cycle of six months or
longer from the point of initial customer contact until receipt of the first
system order, and there will typically be a period ranging from one to six
months from the time an order is initially received to the time the system is
installed. The Company generally recognizes revenue from the sale of systems
upon installation at the customer site; revenues from add-ons, upgrades,
software licenses, and sales to distributors are generally recognized upon
shipment to the customer or distributor.
Within the context of the above-described sales cycle, both product and customer
support revenues for the Company remain dependent upon overall demand for
telecommunications products, which has in the past, and may in the future,
fluctuate significantly based on numerous factors, including capital spending
practices of customers, market competition, and economic conditions in general.
Given the relatively large sales prices of the Company's systems in relation to
quarterly revenue levels, a limited number of systems can account for a
substantial portion of product revenues in any particular quarter. Moreover, a
significant percentage of system revenue continues to be derived from new
customers. Revenues and the related gross product margins can be expected to
fluctuate due to the mix of products sold, channel of distribution, the volume
of systems sold to individual customers, and the operating results of TCS.
Because of these and other factors, the Company could experience significant
fluctuations in product and customer support revenues and operating results in
future periods. While the Company believes that its products will continue to
compare favorably with competitive products, competition may have an erosive
effect on prices, resulting in lower product margins and operating results.
Product revenues for the second quarter of 1996 were $54 million, representing
an increase of 61% when compared with product revenues of $34 million for the
same period in 1995. Product revenues for the first six months of 1996 were $104
million, representing an increase of 59% when compared with product revenues of
$66 million for the same period in 1995. The increases in product revenues for
both periods were primarily attributable to increased demand for the Company's
products, as both the volume of new system sales and the volume of add-ons and
upgrades increased from the same periods in 1995, and the inclusion of TCS's
product revenues in 1996. Average selling prices on new systems remained
relatively stable across the periods.
Customer support revenues for the second quarter of 1996 were $17 million,
representing an increase of 38% when compared with customer support revenues of
$12 million for the same period in 1995. Customer support revenues for the first
six months of 1996 were $33 million, representing an increase of 41% when
compared with customer support revenues of $23 million for the same period in
1995. The increases in customer support revenues for both periods resulted
primarily from the growth of the installed base and the inclusion of TCS's
customer support revenue in 1996. Customer support revenues include charges to
install products at customer sites, charges for providing contractually
agreed-upon ongoing system service and maintenance, which typically commences
twelve months from the date a system is first installed, and other support
services provided to the Company's customers. Installation revenue will
generally follow product revenue fluctuations, although no installation revenue
is ordinarily received for product sales to the Company's distributors. Contract
support revenues are largely dependent on renewable customer support contracts
and will be primarily affected by the general growth in Aspect's installed base.
Since most costs associated with providing customer support are fixed, quarterly
fluctuations in customer support revenues can have a significant impact on the
related customer support gross margin.
Subsequent to the end of the second quarter of 1996, the Company received a
multi-system order from the United States Postal Service (USPS) for automatic
call distributors and certain call center support services valued at $20
million. Recently, one of the Company's competitors filed an award protest with
the General Counsel of the USPS in connection with such order alleging that the
USPS improperly awarded the contract. There can be no assurance that such
protest will be resolved in the Company's favor. Subject to
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ASPECT TELECOMMUNICATIONS CORPORATION
favorable resolution of the protest, installation of the first systems is
anticipated to begin in 1996 and the contract will span five years.
Gross Margin on Product Revenues
Product gross margin increased to 67% for the second quarter of 1996 from 66%
for the same period in 1995. The increase in product gross margin was primarily
attributable to the inclusion of TCS's product revenues in the second quarter of
1996, which typically carry higher margins than the Company's other product
revenues. For the first six months of 1996, product gross margin increased to
67% from 65% for the same period in 1995. The increase in product gross margin
reflects the inclusion of TCS's product revenues in 1996, which typically carry
higher margins than the Company's other product revenues, and lower revenues
from sales to the Internal Revenue Service, which typically have lower than
average margins. As noted above, gross product margins can be expected to
fluctuate due to the mix of products sold, channel of distribution, the volume
of systems sold to individual customers, the operating results of TCS, and other
factors.
Gross Margin on Customer Support Revenues
Customer support gross margin decreased to 28% for both the second quarter and
first six months of 1996 from 29% for the same periods in 1995. The decreases in
customer support margin for both periods primarily reflect customer support
revenues not growing proportionately with the costs associated with providing
the related services. As noted above, since most costs associated with providing
customer support are fixed, quarterly fluctuations in customer support revenues
can have a significant impact on the related customer support gross margin. On a
forward-looking basis, the Company anticipates that its customer support gross
margins may decline further in the next several quarters as the Company
significantly expands its efforts in the area of consulting and systems
integration.
Research and Development Expenses
Research and development ("R&D") expenses were $8 million for the second quarter
of 1996, representing an increase of 40% when compared with R&D expenses of $6
million for the same period in 1995. R&D expenses were $15 million for the first
six months of the year, representing an increase of 43% when compared with R&D
expenses of $11 million for the same period in 1995. The increases in R&D
expenses for both periods were primarily attributable to increases in R&D
personnel, equipment expenditures, and related infrastructure costs, as well as
the inclusion of TCS's R&D expenses in 1996. As a percentage of net revenues,
R&D spending was 11% for both the second quarter and first six months of 1996
compared to 12% for the same periods in 1995. The Company continues to believe
that significant investment in research and development is required to remain
competitive and anticipates, on a forward-looking basis, that such expenses will
increase in terms of absolute dollars for 1996 as a whole, when compared to
1995, although such expenses as a percentage of net revenues may fluctuate on a
quarterly basis.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses were $19 million for the
second quarter of 1996, representing an increase of 65% when compared with SG&A
expenses of $12 million for the same period in 1995. SG&A expenses were $37
million for the first six months of 1996, representing an increase of 66% when
compared with SG&A expenses of $22 million for the same period in 1995. The
increases in SG&A expenses for both periods were primarily related to increases
in personnel and related expenses, the expansion of the Company's operations,
the inclusion of TCS's SG&A expenses in 1996, and the amortization of the
intangible assets related to the TCS acquisition. As a percentage of net
revenues, SG&A was 27% for both the second quarter and first six months of 1996
compared to 25% for the same
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periods in 1995. The Company is currently in the process of implementing a new
internal integrated business application software program and, during the second
quarter of 1996, began using such software as its principal business application
software for its domestic operations. There can be no assurance that
complications will not arise from the software system transition, resulting in
substantial, unanticipated expenses. The Company anticipates, on a
forward-looking basis, that SG&A expenses will increase in terms of absolute
dollars for 1996 as a whole, when compared to 1995, although such expenses as a
percentage of net revenues may fluctuate on a quarterly basis.
Net Interest Income
Net interest income (interest income, net of interest expense) was $0.3 million
for the second quarter of 1996, representing a decrease of 47% when compared
with net interest income of $0.6 million for the same period in 1995. Net
interest income was $0.6 million for the first six months of 1996, representing
a decrease of 41% when compared with net interest income of $0.9 million for the
same period in 1995. The decreases in net interest income for both periods were
primarily due to interest expense on the note payable incurred in connection
with the TCS acquisition, lower interest earning balances and lower yields on
interest earning balances.
Income Taxes
The Company's effective income tax rate was 37% for the second quarter and first
six months of 1996, and the comparable periods in 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, the Company's principal source of liquidity consisted of
cash, cash equivalents, and short-term investments totaling $109 million, which
represented 45% of total assets. The primary sources of cash during the first
six months of 1996 consisted of cash provided by operating activities of $22
million and proceeds from the issuance of common stock under various stock plans
of $4 million. The primary uses of cash during the first six months of 1996
consisted of $3 million for net purchases of short-term investments and $11
million for purchases of property and equipment.
As of June 30, 1996, the Company's outstanding borrowings consisted of $55
million of convertible subordinated debentures and a $4.5 million note payable
incurred in connection with the acquisition of TCS (see Notes 7 and 2,
respectively, to the Company's 1995 Consolidated Financial Statements).
On July 26, 1996, the Company acquired a 98,000 square-foot building and
approximately ten acres of land, of which approximately four acres are
undeveloped, for $10.5 million in cash (see Notes to Condensed Consolidated
Financial Statements).
The Company believes, on a forward-looking basis, that its cash, cash
equivalents, and short-term investments and anticipated cash flow from
operations will be sufficient to meet the Company's presently anticipated cash
requirements during at least the next twelve months.
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ASPECT TELECOMMUNICATIONS CORPORATION
Part II: Other Information
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 9, 1996, the Annual Meeting of Shareholders of Aspect Telecommunications
Corporation was held in San Jose, California.
An election of directors was held with the following individuals being elected
to the Board of Directors of the Company:
James R. Carreker (19,387,541 votes for, 59,694 votes withheld)
Debra J. Engel (19,428,121 votes for, 19,114 votes withheld)
Norman A. Fogelsong (19,428,038 votes for, 19,197 votes withheld)
James L. Patterson (19,428,115 votes for, 19,120 votes withheld)
John W. Peth (19,427,429 votes for, 19,806 votes withheld)
Other matters voted upon and approved at the meeting, and the number of
affirmative and negative votes cast with respect to each such matter were as
follows:
To amend the 1990 Employee Stock Purchase Plan to increase the number
of shares of Common Stock reserved for issuance thereunder by 250,000
shares (17,312,246 votes in favor, 183,784 votes opposed, 116,568
abstaining, 1,834,637 votes withheld).
To amend the 1989 Stock Option Plan to increase the number of shares of
Common Stock reserved for issuance thereunder by 1,000,000 shares
(10,134,197 votes in favor, 7,349,828 votes opposed, 128,573
abstaining, 1,834,637 votes withheld).
To ratify the appointment of Deloitte & Touche LLP as the independent
auditors of the Company for the year ending December 31, 1996
(19,318,579 votes in favor, 24,882 votes opposed, 103,774 abstaining,
no votes withheld).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
Exhibit 10.55 Agreement of Purchase and Sale between the Registrant
and Arrow Electronics, Inc., dated April 22, 1996
Exhibit 11.1 Statement re: Computation of Earnings Per Share
Exhibit 27 Financial Data Schedule
B. REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended June 30, 1996.
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ASPECT TELECOMMUNICATIONS CORPORATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Aspect Telecommunications Corporation
(Registrant)
Date: August 13, 1996
By
/s/ Eric J. Keller
-------------------------------------------
Eric J. Keller
Vice President, Finance and
Chief Financial Officer
(Duly Authorized and Principal Financial
and Accounting Officer)
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